This is a mess. Mom dies on 12/26/21 and does not have a beneficiary listed for 401K. Sole heir and personal representative is her daughter (my stepdaughter) who was woefully incapable of carrying out PR duties but refused to get help. Despite my telling her to the contrary (since I could see the 401K contributions on her mom’s W-2 for 2021) daughter is convinced from talking to employer there is no 401K. I am assuming it can be rolled over just like and IRA. Wrong. Fidelity sends her 402(f) Notice (as PR) in July 2022 along with a letter says among other things “if you would like to request a distribution, please call us” and included a pamphlet on rollover options that said “You are receiving this notice because all or a portion of a payment you are receiving from the_[PLAN] is eligible to be rolled over to an IRA or an employer plan.” Later in the year, Fidelity sent another letter that starts off saying “As a beneficiary of a retirement plan account, you must withdraw the entire amount of your account before December 31 of this year.” Daughter doesn’t open or read any of this mail (she lives at 2 different places and never checks mail because “she never gets much mail”) and in early 2023 discovers these letters along with another envelope containing a check issued for the entire balance less the 10% withholding. Check is dated 12/23/22 and the disbursement online shows as 12/26/22 and 1099R ($52K) is issued for 2022. Daughter doesn’t mention any of this to anyone until April 2023. Major tax problem!

So we only have 2 options – get the income into 2023 so it can at least be distributed to daughter’s return (who has $0 income) or, get them to change beneficiary to daughter spread it over 5 years. She and I call Fidelity customer service in early May and explain the problem and it was suggested that we write the Legal department explaining why this had to be an oversight on her mom’s part and so we did. Letter delivered 6.17.23. No response so we called again on 8/10/23 and spoke with a 401K service rep. She said it looked like a “request for reversal” was recently submitted but after talking with her manager was told it would most likely be denied. I asked her why the balance had to be liquidated in 2022. Her manager said that the “employer did an audit and directed them to liquidate account”. That was the only reason given. When daughter’s dad and I take over as Co-PRs in next week or 2, I will be asking Fidelity the same question. Will also ask them why their first letter sent in July was grossly incorrect and misleading given that the estate was listed as beneficiary of this account so therefore, has NEVER been eligible for rollover. Moreover, this letter explicitly states that it is up to the recipient to initiate a distribution by calling them. Making a complete reversal of this position and then, in particular, giving the recipient literally no time to distribute (K-1) this payment out of the estate to the daughter forces the daughter to take a $15K tax hit for state and federal income taxes. This is not even reasonable to me. If they had to liquidate account, they should at least explained why and have allowed a couple of weeks for check to be deposited into the estate account, and for funds to clear so distribution could be made. Questions: (1) On what grounds can Fidelity require an account to be liquidated by the end of the following year without knowledge or consent of PR or beneficiary (particularly when the initially said otherwise)? Is this a legal requirement somewhere that I am missing? How much notice must be given between saying it must be liquidated and the disbursement? (2) It is highly possible that the check was not delivered until after 12/31/22 given the delays in both the USPS and in the organization itself due to the holidays. Any way to report in 2023 as receipt without getting Fidelity to correct 1099R? (3) Letter we sent in June built case for changing beneficiary to daughter is similar case for ruling on PLR 2023-22-014 – daughter is sole heir of the estate, sole PR, and was listed as sole beneficiary on decedent’s other accounts. Do you have any advice on any particular action we might take on this to avoid the this tax disaster? If driven by employer, can I appeal to the employer’s Benefit Plan Committee. We are talking about a $20K tax bill for the estate that she can’t really afford.